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What does Wells Fargo scandal mean for corporate governance jobs?

14 / 10 / 2016
What does Wells Fargo scandal mean for corporate governance...Wells Fargo recently became embroiled in a scandal regarding its highly controversial sales incentive scheme, with thousands of employees creating new customer bank accounts and applying for credit cards without authorisation. 

In fact, auditors revealed the US-based bank's staff opened more than two million phoney accounts in an effort to hit targets and achieve bonuses. The organisation has sacked over 5,300 employees since the deception was first uncovered, but the scandal continues to claim further casualties. 

CEO and chairman of Wells Fargo John Stumpf stepped down on Wednesday (October 12th) after 34 years with the firm, nine of which were as chief executive. Tim Sloan, president and chief operating officer, will replace him at the helm. 

The scandal led Democrat Congresswoman Maxine Waters to call for extreme measures at the bank. 

"I've come to the conclusion that Wells Fargo should be broken up," she stated at a Capitol Hill hearing last month. "It's too big to manage and I'm moving forward to break up the bank."

But what would happen to corporate governance jobs at Wells Fargo if this were to go ahead? Would a break-up create more opportunities? Let's delve deeper into what failings occurred and what could happen if the banking giant's structure changed. 

Widespread behaviour

The audit discovered that employees were moving customers' funds from existing accounts into newly created ones without their consent. The practice had been prevalent across Wells Fargo since 2011, with customers charged unwarranted fees when their legitimate accounts had insufficient money due to the covert transfers. 

Staff were also creating fake email addresses and signing customers up to online services without their knowledge. 

The US Consumer Financial Protection Bureau (CFPB) hit Wells Fargo with a record fine of $100 million (£81.6 million) for the scam. The company must also pay $50 million to the City and County of Los Angeles and $35 million to the Office of the Comptroller of the Currency. 

Wells Fargo also paid back all customers that the violations affected, which the firm announced had cost $2.6 million. The bank scrapped its sales target scheme on October 1st, having previously planned to shelve the initiative on January 1st 2017. 

Mr Stumpf will also forfeit $41 million of stock awards and a chunk of his salary and bonus for this year. Nevertheless, before stepping down, he was questioned on Wells Fargo's actions over the last five years. 

Lawmakers grilled the former CEO on why the bank hadn't done more to resolve the problem, despite having to fire thousands of employees since 2011 for ethical breaches related to sales targets. 

According to Mr Stumpf, he only became aware of the scam in 2013, by which time the bank had taken several steps to resolve the problem. 

More focus on corporate governance?

In the wake of the scandal, some industry commentators have indicated that more corporate governance jobs could become available at Wells Fargo, particularly if the organisation was broken down into smaller parts. 

Writing for CNN Money, Paul La Monica said chopping up the company could see more compliance and middle management positions arise for each new component of the bank. However, he quickly added that the firm might choose to make workers redundant instead. 

Only time will tell what the true fate of the corporate governance function at the bank may be, although the situation continues to cause ripples across the US financial services industry. 

The New York State Department of Financial Services has since issued guidance to prevent similar sales practices occurring across the state's 121 chartered banks. 

"The inappropriate behaviour we have seen at institutions like Wells Fargo are the same ones that led to the 2007 financial crisis, and there must be zero tolerance for reckless policies that foster greed and put New Yorkers' financial futures at risk," Governor Andrew Cuomo stated. 

Among the key principles outlined in the new guidelines is that banks prioritise effective corporate governance, including oversight of each organisation's board of directors. 

It's yet to be seen whether other states will follow in New York's footsteps, and what effect, if any, these moves have on corporate governance headcounts. However, businesses on both sides of the pond will no doubt be watching the situation unfold with interest to see how changes in the US could spread internationally.

Our 2016 Compensation and Market Trends Reports combine our review of the prevailing conditions in the corporate governance recruitment market together with the results of our latest employer survey.

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